Bill of materials definition
/What is a Bill of Materials?
A bill of materials (BOM) is the record of the raw materials, sub-assemblies and supplies used to construct a product. It contains a description, unit count, and scrap estimate for each line item. This document must be extremely accurate. If this is not the case, an organization may order incorrectly from suppliers and pull the wrong items from stock for a production run, which can result in major delays in the production process.
When to Use a Bill of Materials
A bill of materials is most useful in the following situations:
Manufacturing complex products. When producing complex products with multiple components, such as automobiles, electronics, or machinery, a BOM is essential for organizing and tracking all parts and sub-assemblies required. It ensures that every component is accounted for, which helps streamline procurement, inventory management, and production scheduling.
Custom product assembly. In industries like custom furniture or specialized equipment manufacturing, BOMs help manage variations in materials and parts based on customer specifications. This detailed record allows manufacturers to accurately estimate costs, reduce waste, and manage inventory efficiently.
Engineering and product development. During the design and prototyping phases, engineers use BOMs to document and manage the materials and components needed. This allows for accurate cost estimation, testing of different material combinations, and smooth transition from design to full-scale production.
Inventory and cost control. BOMs help in maintaining optimal inventory levels by providing a clear view of required materials and their quantities. This prevents both stockouts and excess inventory, helping control costs and improve cash flow. It also aids in identifying cost-saving opportunities by analyzing material usage and scrap rates.
Regulatory compliance and quality control. In industries like pharmaceuticals, aerospace, and electronics, BOMs are crucial for compliance with regulations and standards. They provide a detailed traceability record of materials used, which is essential for audits, certifications, and addressing product recalls or defects.
Related AccountingTools Courses
Who Uses a Bill of Materials?
Several parties within a business use the bill of materials. They are as follows:
Cost accountant. The cost accountant uses the bill of materials to calculate the cost of a product. This information can be used to estimate the margins on products, as well as to calculate a standard cost of goods sold or ending inventory valuation.
Materials manager. The materials management staff uses the bill of materials to order parts from suppliers. This is usually done in conjunction with a material requirements planning (MRP) system, which calculates the number of component parts needed for a scheduled production run, subtracts out any unallocated parts already on hand, and then places orders with suppliers for the remaining required quantities.
Terms Similar to Bill of Materials
A bill of materials is also known as an assembly component list.